Disney's Great Leap into China

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It's an impressive list but still a Jiminy Cricket-- size business. Bureaucratic red tape and rampant piracy in China have stymied much of the profitmaking potential of the Mouseketeers. Disney has been unable to bring in its Disney Channel because of restrictions on media ownership. Legitimate Disney DVDs cost up to 10 times as much as knock-offs, restricting sales to a trickle. A hot title like Finding Nemo sold a scant quarter of a million or so genuine DVDs in China. (By comparison, Nemo sold nearly 15 million DVDs in the U.S. and Canada during its first two weeks alone.) The company, as a result, has lobbied the Chinese government to crack down on piracy.

Disney has also had the occasional misstep in China. In 1996 Beijing blocked the company's films after Disney backed Martin Scorsese's Kundun, which dramatized the life of the Dalai Lama and China's invasion of Tibet. (Beijing considers Tibet an integral part of China.) Mulan, which tells the story of a girl who fought in the Chinese emperor's army in place of her crippled father, was originally rejected for showings in China. Hollywood executives saw that as retaliation for the political incorrectness of Kundun, but an anonymous Chinese official quoted by the country's Xinhua news agency blandly attributed it to "a complicated issue." When Mulan finally hit Chinese theaters in 1999, it flopped at the box office, reportedly in part because the story was too Westernized. Although Disney doesn't reveal specific figures on its China business, a former executive who wished to remain anonymous says, "They're not doing any meaningful business at this point."

Incoming chief executive Robert Iger badly wants to change that. Unlike his predecessor, Michael Eisner, who never seemed comfortable with international expansion--"Going to China and the Far East might as well have been Mars," the anonymous former exec says of Eisner--Iger has made boosting Disney's overseas revenues a priority. China is a personal Iger favorite. He has made numerous visits, lunched with senior leaders and even dropped in for a movie at a Shanghai cinema. It was so modern, Iger says, "I might as well have been in a multiplex in Indiana."

With so much on the line, a successful Hong Kong Disneyland is crucial. Executives hope the park will pave the way for the company's DVDs, TV shows, toys and other businesses to thrive in China by acting as a huge roller-coaster-filled advertisement for the Disney brand. "At the highest level, Hong Kong Disneyland is a beachhead for the Walt Disney Co. in China," says Jay Rasulo, president of Disney's theme parks and resorts.

Disney's record with overseas theme parks, however, has been mixed. Tokyo Disneyland has been a smash, with 25 million visitors a year, but Euro Disney, based near Paris, has been a financial sinkhole. Earlier this year, Euro Disney finalized a $2 billion restructuring plan, which included new capital and loan concessions, to rescue the operation. Among the park's problems have been cultural faux pas that have turned off its European audience. When Euro Disney opened, for example, restaurants wouldn't serve wine, an affront even to the French soil it was built on.